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Hearing Committee on Agriculture House of Representatives HEARING TO REVIEW THE 2016 AGENDA FOR THE COMMODITY FUTURES TRADING COMMISSION HEARING BEFORE THE COMMITTEE ON AGRICULTURE HOUSE OF REPRESENTATIVES ONE HUNDRED FOURTEENTH CONGRESS SECOND SESSION FEBRUARY 10, 2016 Serial No. 114–40 ( Printed for the use of the Committee on Agriculture agriculture.house.gov U.S. GOVERNMENT PUBLISHING OFFICE 98–680 PDF WASHINGTON : 2016 For sale by the Superintendent of Documents, U.S. Government Publishing Office Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800 Fax: (202) 512–2104 Mail: Stop IDCC, Washington, DC 20402–0001 VerDate Mar 15 2010 13:17 Apr 13, 2016 Jkt 041481 PO 00000 Frm 00001 Fmt 5011 Sfmt 5011 P:\DOCS\114-40\98680.TXT BRIAN COMMITTEE ON AGRICULTURE K. MICHAEL CONAWAY, Texas, Chairman RANDY NEUGEBAUER, Texas, COLLIN C. PETERSON, Minnesota, Ranking Vice Chairman Minority Member BOB GOODLATTE, Virginia DAVID SCOTT, Georgia FRANK D. LUCAS, Oklahoma JIM COSTA, California STEVE KING, Iowa TIMOTHY J. WALZ, Minnesota MIKE ROGERS, Alabama MARCIA L. FUDGE, Ohio GLENN THOMPSON, Pennsylvania JAMES P. MCGOVERN, Massachusetts BOB GIBBS, Ohio SUZAN K. DELBENE, Washington AUSTIN SCOTT, Georgia FILEMON VELA, Texas ERIC A. ‘‘RICK’’ CRAWFORD, Arkansas MICHELLE LUJAN GRISHAM, New Mexico SCOTT DESJARLAIS, Tennessee ANN M. KUSTER, New Hampshire CHRISTOPHER P. GIBSON, New York RICHARD M. NOLAN, Minnesota VICKY HARTZLER, Missouri CHERI BUSTOS, Illinois DAN BENISHEK, Michigan SEAN PATRICK MALONEY, New York JEFF DENHAM, California ANN KIRKPATRICK, Arizona DOUG LAMALFA, California PETE AGUILAR, California RODNEY DAVIS, Illinois STACEY E. PLASKETT, Virgin Islands TED S. YOHO, Florida ALMA S. ADAMS, North Carolina JACKIE WALORSKI, Indiana GWEN GRAHAM, Florida RICK W. ALLEN, Georgia BRAD ASHFORD, Nebraska MIKE BOST, Illinois DAVID ROUZER, North Carolina RALPH LEE ABRAHAM, Louisiana JOHN R. MOOLENAAR, Michigan DAN NEWHOUSE, Washington TRENT KELLY, Mississippi SCOTT C. GRAVES, Staff Director ROBERT L. LAREW, Minority Staff Director (II) VerDate Mar 15 2010 13:17 Apr 13, 2016 Jkt 041481 PO 00000 Frm 00002 Fmt 0486 Sfmt 0486 P:\DOCS\114-40\98680.TXT BRIAN C O N T E N T S Page Conaway, Hon. K. Michael, a Representative in Congress from Texas, opening statement .............................................................................................................. 1 Prepared statement .......................................................................................... 2 Peterson, Hon. Collin C., a Representative in Congress from Minnesota, open- ing statement ........................................................................................................ 3 WITNESS Massad, Hon. Timothy G., Chairman, Commodity Futures Trading Commis- sion, Washington, D.C. ........................................................................................ 3 Prepared statement .......................................................................................... 5 Supplementary material .................................................................................. 39 Submitted questions ......................................................................................... 45 (III) VerDate Mar 15 2010 13:17 Apr 13, 2016 Jkt 041481 PO 00000 Frm 00003 Fmt 5904 Sfmt 5904 P:\DOCS\114-40\98680.TXT BRIAN VerDate Mar 15 2010 13:17 Apr 13, 2016 Jkt 041481 PO 00000 Frm 00004 Fmt 5904 Sfmt 5904 P:\DOCS\114-40\98680.TXT BRIAN HEARING TO REVIEW THE 2016 AGENDA FOR THE COMMODITY FUTURES TRADING COMMISSION WEDNESDAY, FEBRUARY 10, 2016 HOUSE OF REPRESENTATIVES, COMMITTEE ON AGRICULTURE, Washington, D.C. The Committee met, pursuant to call, at 10:00 a.m., in Room 1300 of the Longworth House Office Building, Hon. K. Michael Conaway [Chairman of the Committee] presiding. Members present: Representatives Conaway, Lucas, King, Thompson, Gibbs, Austin Scott of Georgia, Crawford, DesJarlais, Davis, Allen, Newhouse, Kelly, Peterson, David Scott of Georgia, Costa, Walz, McGovern, DelBene, Lujan Grisham, Kuster, Nolan, Bustos, Maloney, Aguilar, Plaskett, Adams, Graham, and Ashford. Staff present: Caleb Crosswhite, Jackie Barber, Kevin Webb, Mollie Wilken, Paul Balzano, Scott C. Graves, Stephanie Addison, Faisal Siddiqui, John Konya, Liz Friedlander, Matthew MacKenzie, Mike Stranz, Robert L. Larew, Nicole Scott, and Carly Reedholm. OPENING STATEMENT OF HON. K. MICHAEL CONAWAY, A REPRESENTATIVE IN CONGRESS FROM TEXAS The CHAIRMAN. Good morning. This hearing of the Committee on Agriculture to review the 2016 agenda for the Commodity Futures Trading Commission, will come to order. Good morning and welcome. Today’s hearing is held against a bleak backdrop for many commodity producers, especially in farm country. The past 2 years have seen a dramatic fall in commodity prices across the board, creating significant operational challenges for producers. It is in uncertain times that futures and other de- rivatives markets provide their greatest benefit to our producers. These markets allow hedgers to look over time’s horizon and see what the collective wisdom of the crowd says about the future. The long range price forecasts by futures markets provide invalu- able information to farmers, helping them to decide whether to plant, what to plant, and how to plant. Those same prices are used in crop insurance policies that farmers purchase to protect against risk. Bottom-line, the futures markets are instrumental in pro- viding risk management to commodity producers. But, for many, managing risk in the market isn’t as easy as it once was. Many producers face markets that are more brittle than they used to be markets with more volatility and less liquidity than in the past. They also face increased costs to access essential dealing (1) VerDate Mar 15 2010 13:17 Apr 13, 2016 Jkt 041481 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 P:\DOCS\114-40\98680.TXT BRIAN 2 and clearing services. Some smaller market participants have been fired by their brokers because the FCM can no longer afford the regulatory costs of keeping them as clients. For too many end-users, Dodd-Frank has created more com- plicated and more intrusive, and more costly regulatory mandates that force hedgers to choose between paying more to manage their risk or risking more to manage their cash. This is not what Con- gress intended when it enacted Dodd-Frank. I believe that my col- leagues who supported Dodd-Frank believed that end-users, the hedgers for whom risk management markets are an essential busi- ness tool, would not be harmed by that legislation. To that end, I want to commend the Commissioners for the work they have done to find common ground on reforms to several important regulations that posed needless burdens to end-users. That said, the Chairman’s work on end-user issues, I don’t be- lieve, is not done. I am still deeply concerned with the Commis- sion’s position limits proposal and the impact the new bona fide hedging restrictions will have on agricultural producers, especially when they are struggling with low commodity prices. The proposed reg AT also needs significantly more work to narrow its definitions and eliminate the potential impact on smaller market participants that should not be swept up in it. Finally, the CPA in me cannot close without touching on the im- portance of getting to the bottom of the accounting mess the CFTC finds itself in. First, I want to thank Chairman Massad for the CFTC’s responsiveness to our inquiries on this matter. The Com- mission’s continued openness will help in this process. But, I am troubled by the accounting irregularities. Any mistake is cause for concern, but especially one that goes unnoticed for years. In this case, the failure of the Commission’s internal accounting systems has led to at least one law being broken. That is clearly unaccept- able, and I look forward to hearing a plan from the Chairman on how to fix the problem. I want to welcome Chairman Massad back to our Committee. Thank you for putting the time in to prepare for our hearing today. [The prepared statement of Mr. Conaway follows:] PREPARED STATEMENT OF HON. K. MICHAEL CONAWAY, A REPRESENTATIVE IN CONGRESS FROM TEXAS Good morning and welcome to the Agriculture Committee’s hearing to review the 2016 agenda for the Commodity Futures Trading Commission. Today’s hearing is held against a bleak backdrop for many commodity producers, especially those in farm country. The past 2 years have seen a dramatic fall in com- modity prices, across the board, creating significant operational challenges for pro- ducers. It is in uncertain times that futures and other derivatives markets provide their greatest benefit to producers. These markets allow hedgers to look over time’s horizon and see what the collective wisdom of the crowd says about the future. The long range price forecasts by futures markets provide invaluable information to farmers, helping them to decide whether to plant, what to plant, and how much to plant. Those same prices are used in the crop insurance policies that farmers pur- chase to protect against risk. Bottom-line, the futures markets are instrumental in providing risk management to commodity producers. But, for many, managing risk in the market isn’t as easy as it once was. Many producers face markets that are more brittle than they used to be, with more volatility and less liquidity than in the past. They also face increased costs to access essential dealing and clearing services. Some smaller market participants have even been ‘‘fired’’ by their brokers, because the FCM can no longer afford the regulatory
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